You are here

What happens when charity president creates a (c)(4)?

Your Legal Questions Answered

Search Questions Previously Answered

What happens when charity president creates a (c)(4)?

The president of a 501(c)(3) charity, who is also the most highly paid employee, started a 501(c)(4) so that there would be limitless opportunity for advocacy on the same issues the (c)(3) deals with. Does this create a conflict of interest for the president and/or either board? Does the (c)(3) need to have written guidelines regarding separation of duties and bookkeeping of time spent on activities?

It is not unusual for a charitable organization to create a 501(c)(4) social welfare organization to loosen the restraints on lobbying and electioneering. (Some (c)(4)s likewise create (c)(3) charities to raise tax-deductible contributions for their educational or litigation activities.) The U.S. Supreme Court has specifically sanctioned the use of dual entities to promote their goals.

I don’t understand how the president of the charity could unilaterally create a (c)(4) that has not been approved by the board. This sounds as though it could be a free-standing entity. Normally one of the entities controls the other so that their activities are fully coordinated and the finances are under control. There may be a technical conflict of interest between the officers and the boards, but when their purposes are consistent, it is easily waivable.

It would be very helpful to have written guidelines regarding the separation of duties and expenses. The key thing to remember is that the (c)(4) can give things (like money and services) to the (c)(3), but the (c)(3) ought not to be giving things to the (c)(4). The IRS does not like using charitable assets for non-deductible, non-charitable activities.

Read the Current Issue

March Webinar

IRS Form 990: Public Relations Opportunity or Trap for the Unwary?

Wednesday, March 20, 2019
1:30-3:00 PM ET(PA CLE & CPE credit is available for this webinar)

Because most charity Form 990 tax information returns are instantly available on the Internet, they can be an organization's most important public relations document.

They can also be traps for the unwary that lead to confusion, serious adverse publicity, media inquiries, and governmental sanctions. This session will view the full (long form) Form 990 from the perspectives of a donor and a regulator and discuss best practices for using the Form as a tool to provide transparency on an organization's operations.

Subscribe

Here's what our readers say about Nonprofit IssuesThanks again for your excellent and helpful website - it's a wonderful resource for the non-profit community! --Stephanie H.

Thank you for your informative and keen advice on nonprofit matters. I believe it's a unique and concise place to get answers to this often wispy area called nonprofit. --Richard T.

None of the information on the Nonprofit Issues® Website should be deemed legal advice or should be acted upon without prior consultation with appropriate professional advisors.
Materials prepared by Nonprofit Issues® contained in these pages is copyrighted by Nonprofit Issues®, Inc., 2009-2018.